Does Taking A Gold Loan Affect Your Credit Score?

How does a gold loan influences your credit score? Read to get answers to all your queries like applying for gold loan, repayment options etc. Visit Now!

30 Aug,2022 07:10 IST 1277 Views
Does Taking A Gold Loan Affect Your Credit Score?

Financial institutions consider the CIBIL score, popularly referred to as the credit score, as a crucial aspect of lending. It reflects your history of debt repayment and is determined based on various factors, gold loans being one of them. This article spotlights how a loan on gold can affect your credit score.

What Is A CIBIL Score?

Your CIBIL score is a numerical representation of your repayment history. The 3-digit CIBIL number sets an applicant's impression for most lenders. A credit score ranges from 300 to 900. However, a score above 750 is the benchmark for most financial institutions.

Higher CIBIL scores improve eligibility and help individuals take advantage of loan benefits such as lower interest rates and other flexibilities. However, a credit score below 500 is unreliable and can pose a challenge when you apply for unsecured and secured loans.

How Does A Gold Loan Affect Your Credit Score?

A gold loan can affect your credit score in the following ways:

1. Frequency Of The Application

If you apply for multiple loans in a short period, it can reflect on your credit report as someone craving for credit. As a result, this could affect your CIBIL score.

2. Credit Mix

No borrowing history can also lower your credit score. It is advisable to have a mix of secured and unsecured loans from time to time to maintain a decent credit score. You can turn to gold loans in times of emergencies due to their flexible terms and collateral security. Otherwise, you can opt for unsecured loans to maintain a mix of secure and unsecured loans.

3. Existing Loan

Existing unpaid loans on gold may lower your credit rating. Approximately 30% of the CIBIL score depends on outstanding debt while determining your score. Large outstanding debt can negatively impact your CIBIL score and eligibility for additional loans.

4. Loan Default

Defaulting on your secured gold loan can negatively impact your CIBIL score. It is advisable to clear all payments on or before time to maintain a good credit report and score.

5. Loan Settlement

After clearing all the dues, ensure to receive a formal closure certificate from the lending institution. You must confirm that your loan is “closed” and not “settled”.

The former indicates full repayment of dues and other charges if any. The latter suggests you paid an amount lower than the original amount instead. These unpaid dues imply your inability to repay, and the subsequent loss suffered by the lender, which will harm your credit score.

Apply For A Gold Loan With IIFL Finance

IIFL Finance is a leading gold loan lender. Since its inception, it has achieved a hassle-free experience for various borrowers. We have successfully provided loans on gold to 6 million satisfied customers who received their funds.

IIFL offers competitive interest rates and flexible repayment terms for short-term gold loans. We also ensure the safety of your collateralized physical gold until you repay the required amount.

Getting a gold loan has never been easier! Walk into any of our branches pan India, fill out an e-KYC and get your loan approved in under 30 minutes.

Frequently Asked Questions

Q.1: What is a CIBIL Score?
Ans: The CIBIL score is a numerical representation of your past repayment and credit history. It is the probability benchmark for your ability to repay a loan in the future.

Q.2: How to maintain a good credit score?
Ans: Best practices in maintaining a good credit score include timely repayments, clearing existing dues, maintaining a good debt-to-income ratio, avoiding the extension of credit card limit often, and maintaining a fair credit utilization ratio.

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